Some new homeowners are just plain unlucky. You think you’ve moved into your dream house that doesn’t need any work, only to find out there’s water pooling behind the shower wall, your roof has pests, and your furnace dies several years ahead of schedule.
As a new homeowner, you might not qualify for a HELOC (Home Equity Line of Credit) for these unexpected repairs, but you still have options.
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Why a HELOC is Not Always an Option
A HELOC financing is tied to the available equity in your home. So, what does that mean? Equity is the amount you own compared to how much you still owe on your mortgage. To have equity, you need to owe less than the value of your home.
Like most new homeowners, you probably purchased the lion’s share of your home’s value using a mortgage. And since you just purchased this property, you probably still owe your entire mortgage, too. As a result, you simply don’t have equity available to you right now.
Of course, you may find a loophole in some cases, as each lender sets unique policies. It’s always a good idea to double-check with financial institutions to see what’s available to you as a new homeowner.
How to Handle the Unexpected without Tapping into Equity
With your equity tied up with your mortgage, you may not qualify for a HELOC. Thankfully, there are other ways to handle an unexpected repair to your new home.
1. An Unsecured Line of Credit
An unsecured line of credit does not involve equity or any other collateral like a HELOC. Instead, you’ll be approved according to your creditworthiness, as determined by your lender’s policies.
Check out this resource on how to apply for a loan to see what you need to qualify for an unsecured line of credit. In most cases, a good credit score and a regular paycheck help you qualify for the most competitive rates; however, you may still qualify for options when your score is less than perfect.
Generally speaking, an unsecured line of credit will come with a lower limit than the average HELOC; however, it can still be useful in minor emergencies, like patching a roof.
2. Ask About Financing
Do you need to call a plumber to help with a leak or a humane pest control expert to remove a family of raccoons in your attic? These professionals may offer financing plans to help you afford their services.
Open a dialogue about their fees and your unique situation as a broke new homeowner. Ask if you can pay them back over time, just like an installment loan, or push back their due date by a few weeks until you get paid. Being polite and flexible can go a long way to finding a solution that works for both of you.
3. Consider DIY
If you’re handy with a hammer, you might be able to take care of your repair on your own. Take the time to research the issue and see if you have the skills, confidence, and equipment needed for the repair.
Of course, some things are better left to the professionals. Here are some projects you should never DIY unless you have experience:
- Patching your roof
- Installing a new electrical panel
- Rehabbing out-of-code electrical
- Rebuilding your bathroom or kitchen plumbing
- Installing new appliances like a furnace or water heater
Bottom Line:
It’s tricky for new homeowners to face unexpected repairs within the first year of taking the keys — but not impossible. Remember these tips if you have to do work before you save up an emergency fund.
